Bitcoin 突破9.5万美元、加密货币的估值难题与真正链上用户的增长路径

You just cannot justify the valuation of most projects in the space. It's a classic Silicon Valley VC meme: never show revenue, always sell the dream. Crypto is no longer the main character, right? It's AI. So, from a momentum-driven trade over to a valuation-fundamental trade, too—like Ethereum as a $400 billion asset: Avi, Jonah, in what right mind would you buy this when it's cranking out 1 to 2 billion in fees that are not recurring, that are going to dry up in a bear market when liquidity isn't there?

1. Crypto vs the Stock Market

You're churning through most users and liquidity every month when people get liquidated. I just cannot make a case to buy Ethereum. I'm not getting paid enough. I'd rather punt AI.

2. Crypto’s Valuation Problem

God, Jonah, your intro music always gets me fired up. For those that don't know, that little beat there was composed by Jonah himself. Today's a crazy day. The last time we recorded, Bitcoin was above $100,000. Today, we're recording with Bitcoin at $94,000, and things are dropping precipitously.

It looks like the timeline's very anxious. So, in order to assuage those fears, we brought on our professional market man, Santi. Thank you for joining us today.

Thanks, Jonah. Thanks for having me on.

Thank you.

No, this is awesome. I think you, Jonah, and I have talked about this at a high level on a bunch of podcasts, where we basically just keep saying, “Hey, the market is changing dramatically,” and I think it already has changed dramatically a bit. Then you put out a blog post this morning, which I'd highly encourage everybody to read, which really tackles the issue of valuations in crypto and why we might be experiencing some of what we're experiencing right now, where things just keep coming apart.

Other than Bitcoin, if you look at this cycle, outside of Bitcoin, very few things have actually performed well. Most things are down, even though we've been in a quote-unquote bull market. The things that are down are kind of the things that we've always made fun of a little bit, but they're also things like Solana, right? Solana's been sideways for 4 years now. Ethereum is sideways for years now. When you look at it on the grand scheme of things, I guess that's something that was top of our mind: basically, what's happening? Why are things not going up?

Look, when you look at it from a fundamental-analysis perspective, you just cannot justify the valuation of most projects in the space. It's a classic Silicon Valley VC meme of “never show revenue, always sell the dream.”

Perhaps that's the greatest credit I'll give Ripple: they've done a phenomenal job. If you go out walking the street and ask people, “Hey, what do you think about crypto as an infrastructure, this fintech opportunity?” they're like, “Oh, it's Ripple.” It's not Maker. It's not Uniswap. It's not anything, really.

Zooming out a little, the question is: as an investor, is it priced in? It's a hard question, but I think the market already told you that it very much was priced in. You had every narrative that you could have imagined, every headline imaginable, to the point of JPMorgan launching their own deposit token on public infrastructure called Base. Prices are not moving; they're going down.

Bitcoin is in a camp of its own. I think there are reasons why you want to hold it. I think the macro thesis, the hedge, the digital gold narrative is intact. It's less than 10% of gold's market cap. You want to have it in your portfolio.

3. Western Union Thesis

For everything else, it should be valued as a technology play. Crypto is no longer the main character, right? It's AI. So, from a momentum-driven trade over to a valuation-fundamental trade, too—like Ethereum as a $400 billion asset: Avi, Jonah, in what right mind would you buy this when it's cranking out 1 to 2 billion in fees that are not recurring, that are going to dry up in a bear market when liquidity isn't there? You're churning through most users and liquidity every month when people get liquidated. I just cannot make a case to buy Ethereum. I'm not getting paid enough. I'd rather punt AI.

Yeah. I mean, that's been a huge issue, I think, for crypto traders in general: outside of this crazy ride by Zcash recently and, I guess, the mememania of 6 to 8 months ago, trading the stock market has just been infinitely more fun and profitable than trading crypto.

I think we all know that a tremendous amount of value is derived from the fact that crypto was a very fun place to trade. It was a place where you could make a ton of money, and now that's starting to dissipate. What actually worries me more is that crypto was also the 1 place where you could get a ton of leverage.

Let's say you had a small account—you had $1,000—you could lever that up 10, 20, or 30 times; you could go 100x long on BitMEX. You could only do this with crypto. Now Hyperliquid is introducing stocks. I would wager that in the next 2 to 3 years, you're going to be able to trade stocks on pretty significant leverage as well on these platforms. That's another punch in the throat for all the stuff in crypto that isn't real.

Mind you, there's some stuff in the stock market that's real. There are people minting money by buying rare-earth minerals because we're in a rare-earth-mineral war with China. There are people who have minted money by buying small-cap drone stocks, now that drones are much more important in warfare. You can actually put your mind to work in the stock market, whereas in crypto, it seems like—obviously, there's real stuff being built—it's just less so.

Maybe penny stocks are the new crypto, sadly.

Always have been.

I mean, crypto's always been good at creating this public infrastructure: 24/7/365 markets for everything. No one's really disputing that. I think there's a real industry behind that, and the same with Vegas—it's a very real industry in Macau.

My question, and where I come at it, is: should it be worth $1.5 trillion today, excluding Bitcoin? Should that opportunity be worth $1.5 trillion? And if it is, can we actually support the valuation? Because when you look at it from a revenue-generation, value-capture standpoint, it's only going to get harder for most of these chains to capture value. And so I get very nervous when I think about that.

4. Crypto’s Valuation Problem Cont.

Yeah, it doesn't make sense. I mean, I think one thing that my old boss, Don Wilson of DRW, told me when I was asking this same question—which you could have asked during any of the previous cycles with these ridiculous valuations on certain altcoins—was: why is this token so stable at such a multibillion-dollar valuation when it's obviously vaporware?

The team has literally packed up shop. They're not shipping new code. They're buying villas in Sardinia. They're not doing anything. Why is it still worth what it's worth?

The answer I got from Don, which I think is kind of prescient, was, “Hey, Jonah, tokens don't file for bankruptcy.” These valuations can just be sustained for a while. I took that as gospel because at the time it was true.

But I think what needs to be realized now is that we're entering a new paradigm. You talk to any crypto investor about shorting tokens, and they're like, “Ooh, that's tricky. Can't do that,” because it's been so hard. Maybe now is finally the time where you can just sell stuff, because you know, if sentiment on CT is any indication of how people in our space feel, what was supporting those valuations was not revenues, to use your word.

It was the dream, as you said—the dream of future revenues that was supporting them. So now participants, insiders, crypto natives, and bag holders are throwing in the towel. Even though the project itself might not file for bankruptcy, that can certainly take altcoin valuations down a lot. So maybe that's the trade. Maybe we're just supposed to suck it up and short stuff.

Look, I was sitting there in 2017 and 2020—you could have heard me say, “Hey, the top 10 is going to change.” How is Cardano still a top-10 coin? There is a part of market psychology where it's a meme, and so there are credible flows attached to that and there's social value. I'm not here to discount that.

It's just, as an investor, I get worried when I have concerns around broader market valuations, not just in crypto. Will I be willing to hold this thing when you just know liquidity dries up and markets—and these things—really tank 80%?

And so, coming at it more from that standpoint—building a long-term position in things—I just think one is a speculative gamble, like going to Vegas for a weekend. The other one is: are you an investor? And I think there's always been a part of crypto that is very much speculation-driven.

Look, I'm not here to fight or support irrational degen behavior. However, I think something like Ethereum and Solana, and some of the other networks—why? I just ask folks, you know, the Ethereum maxis and Solana maxis. I'm not here to just take a stab at Ethereum or Solana, or pretty much every L1 and L2. Look at it.

But double-clicking on Ethereum for a second, you constantly have investors—even the most successful funds out there—when you read their LP letters, they're all saying the same regurgitated thing, which is: it's a world supercomputer, all this flow is going to get tokenized, and it's going to move on-chain. I don't think anyone is discounting that. Larry Fink is not discounting that. Jamie Dimon is no longer fighting that. The regulator was not discounting that.

The question is, you have all those headlines and prices are going down. So it was very much priced in. It was, and so there was zero margin of safety. The question is, as soon as you start showing that traction, the market was like, “Oh, okay, yeah.” But still, from an MEV standpoint, most of these networks are not capturing 100 times more fees, and you need to see a path where it's growing the user base 1,000x, and the users and the fees attached to that 1,000x, which is not here yet.

So why would I go out of my way to buy something that is priced to perfection? It takes a mouse fart from Powell and Nvidia's earnings to be down that quarter to blow up that thesis and leave you down 80%, 50%, 60%, 70% of the position. I just have no interest in doing that anymore. I've been around this game far too long, and I don't want to round-trip all this stuff.

You could 1,000x users very quickly without 1,000x prices. I mean, I think you're—shout-out to Inversion Capital—you guys are kind of proving that, right? Launching new blockchain technology is commoditized.

So Ethereum and Solana aren't digital New York City anymore, with limited real estate where you have to own ETH or SOL to capture economic activity on-chain. You're building new economic activity on-chain on your own chain. And I guess what does that mean for the rest of the space?

It's kind of like, all right, maybe this is when the valuations compress, and then we'll get another dip to buy, because I'm not giving up on you. I think users will come in way faster if the valuations are normal. You can see that from token launches: when a token launches at a fair price, the community thrives a lot more over the long run than when people buy the absolute peak top and get dumped on. So maybe—I mean, you saw that a lot with Hyperliquid.

5. Is This Time Different?

I do want to go back to the original thing that you were saying. We were talking a little bit about the dream—all these tokens, their valuations are driven by the dream—and, Jonah, you said tokens don't go bankrupt. We've all probably had this idea somewhat: okay, well, yeah, in 2022 things got totally out of control, but people made a ton of money and things went up a ton.

We said this in 2017: “Oh, ICOs, most of these are useless,” but then Cardano sticks around. And so everybody's question always becomes: how are you not wrong now? What is happening now that makes it so different from everything else before, whereas realistically, you could have made the same argument 8 years ago? “Oh, valuations are going to come in.”

I will say it does seem like things are changing right now. One thing that really stood out to me recently is that EOS got delisted from Coinbase, and I think that was the first time I've seen a truly next-generation project get delisted. At one point, EOS was the hyped one. It was the next-generation blockchain. It was the thing that was supposed to eat Ethereum, and it just failed massively.

It turned into a massive value-extraction event, and there was a lot of, I think, real estate bought in Sardinia because of that. So that was nice, but it was the largest, highest purchase price in Italy.

It was bought by likely Brendan Blumer out of—

Block.one. Yeah, like for $160 million. But it's nuts, because now we're starting to see, okay, I think it kind of starts breaking the spell a little bit when something like EOS goes down, where you go, okay, you can raise $4–5 billion. You can be faster, in theory, than Ethereum, and it doesn't matter. It potentially doesn't matter.

I wouldn't argue that this time is different. I think it's like every other cycle. There are huge drawdowns in the space. Even though the top-10 composition didn't change, you have huge drawdowns. I mean, Bitcoin, I would argue, is graduated now.

The volatility in Bitcoin probably continues to go lower as you have more institutional flows and ETF products, but for the rest, nothing changes this time around. You should expect to see 80% drawdowns, 90% drawdowns on these things from majors. And it doesn't change because, again, it's all self-referential.

You're in this loop that crypto is a great capital-formation vehicle, 24/7, 365. Anyone that doesn't have access to the U.S. can now invest in NASDAQ, levered NASDAQ plays, and YOLO and roll the dice in the casino. Great. 24/7, 365. I don't think that's worth $1.5 trillion, because you churn through that constantly, in the same way that people punt their paycheck from paycheck to paycheck.

And so you see these severe drawdowns, because there's no real economic activity beyond speculation anchoring the valuation of these things. Liquidity really does dry up. When you're in a macro bear, you need stimulus checks to really get people to come back and punt your altcoin of choice. And so I don't think this time is any different.

Now, the position that I take is that the most important metric to follow is active users on-chain, and a16z came out with a great report on that. That's really the silent elephant in the room: when are we going to actually break and grow the active user base on-chain? Because that number hasn't really gone up.

Yeah. And the same with the people—there are only so many people that can go into the casino and survive long enough, because the longer you exist in the casino, the higher the likelihood that you're going to be served a drink, you're going to get drunk, or you're going to get liquidated. The vig is pretty good, too. A lot of transaction fees—

1%, 2%, 5% per trade.

Totally. The MEV of networks like Solana—what I tell people is, I want to build the largest chain in terms of active users. That doesn't mean that my chain is going to be the largest in economic activity or the largest in user base, because we'll acquire businesses, we'll bring those businesses on-chain, and the value extraction—the fees, how I monetize users—is very likely going to be lower than the MEV attached to memecoin trading.

6. Valuations vs Active Users

That's very, very extractive, and you're churning through that user base, right?

Yeah, it's not good. I mean, the other thing that's cannibalizing at least ETH is L2s. We haven't talked about that yet. Everybody wants to talk about MegaETH, I think—

I got specifically flamed for that, because people were unhappy with me saying, “Oh, we don't need another L2. The issue is not throughput; the issue is activity.” I do think those 2 things are correlated, but I don't think that we are bound by throughput right now. At some point we will be, but it's not right now.

People were coming after me for calling MegaETH an L2. There's this guy Brad who, I guess, is part of MegaETH, and he sort of wrote a rebuttal to me. I really respect him for trying to engage in good faith, but I think at the end of the day it's still like, hey, we're trying our hardest to bring people onto our chain, but I can't show you anything that's actually real that will be used a substantial amount more than the current applications that already exist.

I think—yeah, look, I'm an early investor in MegaETH, and I think I'll always, on the venture side, be interested in investing in people that want to solve some of the problems of the last 4 years. To your point, block space is increasingly a commodity, and the price of block space has come down a lot. You're no longer in a state of affairs where you're paying $1,000 for a transaction.

No one in their right mind really would want to use the L1 when fees are like that. Ethereum is kind of cooked from that standpoint. The analogy would be, imagine, to your point around real estate or the federal government: Ethereum acts like a federal government, wants a valuation as a federal government, but only collects state or city tax because most of the tax is being collected by L2s. And so the revenue generation of Ethereum, the L1, no longer supports a really credible $380–$400 billion valuation for ETH. And so that's kind of cooked.

The point around this is true for most teams that I sympathize with. You have really smart folks trying to push the limits on throughput, decentralization, and consensus. That's fine. Again, we've invested over $100 billion in infrastructure. In the internet phase, there was overinvestment in fiber. You need the smartphone. You need consumer applications to actually eat up that excess of infrastructure.

Blockspace, I think people just need to update their priors. Blockspace is no longer scarce. How are you going to fill that? And you want to fill that with quality demand for it, not pure speculative activity that is highly cyclical and self-referential.

7. Future of Blockchain

So, just to the point about quality demand for blockspace and what you were saying about how it's about to get very illiquid as people get sort of ejected from the casino or liquidated, or they go bankrupt or face ruin, or just rage-quit crypto, which we're seeing a lot of lately, those 2 things could kind of converge and there might be an interesting trade from the long side.

Hyperliquid, I think, provided there is economic activity going on on-chain there that isn't pure memecoin gambling. Again, levered trading of both stocks and tokens is a useful innovation for retail globally. So, if they're buying back, if you have a 3rd participant, which is the Hyperliquid Foundation, using trading fees from real economic activity to buy back tokens in an illiquid market, I could see that thing squeezing pretty hard to the upside, maybe. So maybe that's what's going to happen.

We're going to get the dark-fiber phenomenon of tech in the 2000s, to your analogy, where most tokens go down. Maybe quality assets like Hyperliquid, which could be considered an Amazon or a Google of crypto, get sold hard, and then the real economic activity jacks it up over the subsequent months and years.

You just have to stay solvent to be able to play for that, and not get long at whatever it is, wherever it's trading—$37 right now—and have it go to $5 on you because of some collapse.

Yeah, look, I'm not disputing the long-term promise of these technologies. Tokenized stocks, and the idea of opening financial markets and tokenizing stocks for the rest of the world, is a massive, massive opportunity. You could probably make a solid argument to your LPs that Hyperliquid is a $40 billion asset, and all the burns are there.

I come from a world of investing in enterprise software, so you have contracted revenue on enterprise software, multi-year. You can really underwrite behind that. It's recurring. You can't really get behind run-rate. Pull up the Blockworks dashboard—revenue of these networks over the last 30 days, 90 days. Go through that list: Solana, over the last 90 days, $150 million of total revenue—revenue, not earnings. Ethereum, similar. Hyperliquid is $5 million.

A lot of analysts in crypto, or investors, just look at that and say, "I'm going to run-rate that." The peak stresses that. All I'm saying is, how do you think that cash revenue stream behaves in a down market? We're not in a down market yet. I think people are feeling the crunch. You listen to the earnings of Chipotle and other companies, and consumers are feeling a pinch. Other than xAI, everything else is kind of in a slog.

Not just in crypto—you need to really get behind the fact that crypto is a hypermacro asset class because you really, really depend on liquidity flows. You have to believe central banks inject money into the economy and that people have enough money to come in and gamble in the casino, whether it's Polymarket or whatever it is that they're punting: stocks, memecoins, fundamental tokens, whatever.

8. Bitcoin vs Crypto

And so that's where I think most investors in crypto play the relative-value game, which is, "Hey, man, Bitcoin is a tenth of gold's market cap, or less than that. Well, there's room to grow. Ethereum is only a fraction of Bitcoin and is worth $400 billion. What if it gets to Bitcoin? And, oh, by the way, Zcash is only 10%; it's only a fraction of Bitcoin." Then you go down and Solana is only worth a fifth of Ethereum. So again, maybe on a relative basis you outperform, but the name of the game here is, to your point, staying solvent. Are you making money?

Million-dollar question for you, Santi. Let's say that you're right—and I agree that you are—that this $1.5 trillion, let's call it the non-Bitcoin space, should not be worth $1.5 trillion, and you could see an 80% drawdown. Let's say that—or maybe let's just make it a little bit more benign—let's say that it goes from $1.5 trillion to $700 billion as the vaporware gets revalued by investors and dumped. What does that do to Bitcoin, if anything, or can it occur exogenously?

I think there's a credible stance here, and you've already seen that this cycle: Bitcoin holds, it's less volatile, and it's just in a class of its own. I could see a world where Bitcoin may go down to $80K or $75K, and the drawdown on the rest of crypto is much more severe. There's a world where Bitcoin rallies and tokens just don't move as much, and you're already seeing that this cycle.

Bitcoin is like a commodity, right? It's very different from how I would characterize everything other than Bitcoin—as a tech stock—and that's a valuation. You're competing for attention and flows against AI, against other parts of the market, and you're constantly believing and praying that those flows continue to show up and people continue to fly into Vegas and punt. We built a 24/7/365 casino, and that's pretty good.

Just to give you some perspective, OpenAI has 800 million users. It's a trillion-dollar company; it likely IPOs at $1 trillion. So on a per-user basis, that's the math you've got to do, right? Crypto is $1.5 trillion excluding Bitcoin, and you have 40 million users. So you're telling me you have 20 times more users for OpenAI and the valuation is not too dissimilar? That's the gap that we have on active users, right?

If you tell me, Jonah, "Hey, look, crypto is—say crypto doesn't move from now, and we wake up one day and we actually have 500 million users on-chain," you're like, "Okay, I can actually start to get behind the valuation for the rest of crypto." Mind you, some of that $1.5 trillion valuation includes stablecoin circulation. Again, you want to see certain things show up, but the most important thing is active users, wallets moving money, and where they're going.

The beautiful thing is that you'll actually be able to underwrite that with high precision because you'll understand where flows are going. You'll understand if they're using Polymarket versus Hyperliquid versus Uniswap or a gaming application likely called Gunzilla.

I don't know what you mean.

But the quality and the activity also need to be diversified away from speculation. We're nowhere near yet. I'd rather, candidly, buy OpenAI at $1 trillion and go long that than hold any position in crypto.

And look, there are always gems in a bull or bear market. There are pockets of crypto. I'm not suggesting categorically just chop everything. However, I think there are certain protocols in DeFi and DePIN that you can wrap your head around the valuation and say, "Okay, gosh, UNI seems to be overlooked, and maybe with regulatory clarity you'll be able to connect the token with equity and do all these things."

I think it just takes longer for regulatory clarity. So why would I—again, it just goes back to—I never want to underwrite something with stacked assumptions. X, Y, Z need to happen. I want to make sure that Jensen Huang doesn't puke. I need to make sure that Powell has a good day, that regulatory clarity shows up, and there's no government shutdown, and then people continue to want to punt this. The probability of A, B, C, D happening—you stack all those together, you're likely going to be wrong in your underwriting process. It's not a clean bet.

9. Crypto Needs Cash Flows

Yeah. No, I'm personally willing to take that risk on the regulatory clarity right now. That's the only part that I'm pretty happy about. We're seeing Uniswap move forward. I guess the question that Jonah and I try to answer a lot, and that we think about, is: there is a shift coming.

We believe that there's a massive shift coming where, of that $1.5 trillion outside of Bitcoin, a substantial amount of that is held in the quote-unquote wrong areas. But when you look at things like Uniswap, or you look at things like Hyperliquid, there are DeFi protocols that, if you take the revenues and look at the pricing, it's like, okay, these things could be actually fairly reasonably priced.

And so one of the things we're trying to think about, right, is, in a drawdown like this, when stuff starts going lower, can we get a period of time—and my answer to this is yes, but I'm curious about your answer—can we get a period of time where you get things like Syrup and Hyperliquid and these other assets going up while the rest of the market is going down, because everyone's just like, "Okay, I'm out of Cardano," right? "I'm out."

And this is where I'm probably mid-curving it quite a bit, because this is where I've been wrong the most. Sitting there investing in DeFi in the early 2020s, you would have really underwritten that thesis, and we were successful underwriting that thesis, but still, the entirety of DeFi was worth less than Dogecoin. This is where markets have become hyperfinancialized, and I'm not here to discount the social mimetic desire.

I think that's a huge part of the valuation underpinning that, and maybe someone can come on this pod and say, “Dude, that guy is crazy because he totally doesn't understand how flows and crypto markets work. It's total midcurve: $1.5 trillion for memes is very supportive, and you could probably construct some analysis behind that and some good calls.” But you have to believe that it’s fluffy, and I can't really wrap my head around that.

I'll go back to cash flows and I'll go back to activity, and it just makes me nervous because I think we're in the second half of a broader market cycle. Valuations everywhere—the market's gone up for a couple of years. Mean reversion is something that I constantly think about to analyze and make investments in crypto, markets, and wherever. So I'm a bit more cautious now.

I want to be sure that the things that I'm holding, I can say, “Hey, look, this thing is cranking out X amount of cash flow,” and I can wrap my head around that. If it falls 20% or 30%, I'll actually put way more on the line and double the position and triple the position. I struggle with valuing and creating a reasonable framework for memes, even though I think they're super important and they could be worth $10 trillion, God knows. I mean, I constantly am surprised by the degenerate energy and activity in crypto.

10. Underwriting New Chains

So, just zooming way out for a second, macro-wise, the reason why I'm pretty darn excited about Bitcoin and the broader landscape for crypto is that I do think affordability is the crisis of our time right now. That's what's being communicated via the recent elections, and that's what the Trump administration is focused on. Inflation is global. Basically, people are struggling. A lot of people are struggling to afford daily life.

Against that backdrop, there's kind of 2 routes that governments can go to solve it. One is socialism, and that's bearish for everything, all assets. The other is stimulus, and I think that the current political backdrop in the West is still—you’re looking at governments that are run by people who are going to lean toward stimulus, not like Pol Pot- or Mao-style redistribution.

And so I think that, in general, that plus the fact that blockchain has already disrupted financial back-office applications and just hasn't been allowed to proliferate until 6 months ago, when it went from being illegal to now legal, is setting up for short-term cash inflows that should buoy all assets, including speculative ones like our space, as well as a longer-term megatrend. Maybe tech in 2000, where it doesn't just happen: you don't go to 2025-level tech prices overnight, but you're at the beginning of a 25-year upswing in crypto. Maybe it's stablecoins or things that are hard to invest in, but it's just adoption of crypto.

So broadly, I'm constructive. The current price setup, I agree, is challenging. Against those 2 conflicting features of the market, Santi, I kind of wanted to ask you: You're about to—or maybe not about to; at some point, you've talked about launching a token, and you're launching a blockchain. How are you thinking about doing that in such a way that token holders benefit, but you don't have to be forced to give up too much of your FDV in a bear market?

Yeah, look, excellent question. We get asked this a lot: Why would you launch another chain? We don't need another chain. And I'll say, for a very specific reason: We'll go and acquire businesses and plug in this technology to make them more efficient. We'll cut costs to improve unit economics. We drive all that activity and settlement to our chain because we don't want to leak that value.

There will be apps in the Ethereum ecosystem—stablecoins and DeFi protocols and DePIN protocols—that are going to benefit from bringing a user that has just not existed in crypto before. It's a user that doesn't care about speculation, that's not here because Bitcoin's at $100K. It's a user that doesn't even realize that crypto's working on the back end. They'll feel the impact.

They'll get a loan; the rate is lower. They'll get a stablecoin that, for all intents and purposes, for them is a dollar, and they're earning yield like a money-market account. And I think that's where we see a path toward becoming the largest chain in terms of active real economic activity.

Our KPI is: Can we buy businesses where there's a core service, like mobile or some other utility, and make those businesses financialized—becoming banks, right?—and bring that activity on-chain? And I think that's where, again, going back to why we have this issue in crypto, I want to bring a non-casino flow into our chain. I want to bring real economic activity, and I think the multiple attached to that chain should be very different than the multiple that you have in other businesses that are in other chains that are just very cyclical. And that's why we have a chain, right?

Yeah.

As we think about this idea between tokens and equity, look, it's very simple.

I want people to look at the chain and say, “Gosh, these guys own 100 businesses, and those businesses have a stream of activity coming through because we own the user relationship. We'll direct that flow to the chain.” You can underwrite that. If there's $1 billion in fees generated by our chain, you could say, “Yeah, these are real businesses. They own them through their fund.” There are other businesses that can plug into the chain, and you say, “Okay, I can actually underwrite that from a reasonable multiple perspective,” and people can come to their own conclusion about that.

That's why I asked the question, though, because—sorry, Avi, I won't ramble too long—I asked not because our listeners tend to get upset when we try to go into the lore behind blockchain development, but more because you're familiar with trading, you're familiar with tokenomics, you're familiar with all of this stuff, and you're launching one right now. So, basically, listening to you, I hope that our listeners walk away with some idea—an example, a concrete example—of something that's investable in this market, you know?

Yeah. Look, we'll have a private-equity fund acquiring real businesses, and you have to be accredited. There's a number of constraints there. We'll have our Inversion chain, and we will have an Inversion token. We'll use that to settle all the activity on the chain.

We raised a round earlier this year for Inversion Labs—we're building a blockchain. We're hiring in a model likely similar to Palantir's. We have forward-deployed engineers and product people who parachute into companies and do the transformation.

I was just with one of the larger investment banks here in New York, and they historically have been very anti-crypto. Now I was talking to people in their investment bank and private bank, and they're saying, “Gosh, a lot of business owners call us today and say, ‘How do I use stablecoins? I want to implement this. I hear Stripe's doing it, and I hear JPMorgan's doing it.’”

I can tell you, from our standpoint, we don't have a problem sourcing demand for companies that want to get acquired or want to utilize this technology.

So we're going to focus on that and, of course, as most projects in the space do, we'll launch a token. How we do it, I think, will be: we're paying a lot of attention to the regulatory environment, how to map out all this cash flow that can be generated as you make businesses more efficient, and how we connect that to the chain.

In a very simplistic way, you'll have a lot of durable, recurring fees in terms of MEV and blockchain fees settling. You can think of it like this: if you want to do an apples-to-apples comparison with a network like Ethereum or Solana, you will do this analysis, right? Blockchains you can inspect in real time: How much MEV is being captured? How much of the fees are being captured here? How many users do they have? What type of activities are happening on this chain?

I don't know if that answered your question. Of course, we've got to be guarded, but we're paying a lot of attention to the regulatory environment—

No, I need to know exactly what company you're buying right now so that we can go in there and bid it up.

We've looked at public companies, but that is sort of a real question: What type of business benefits the most?

Better than crypto.

Western Union trades at 4x P ratio.

Again, price dictates the return that you get. The core thesis that I have personally is that I'm a huge techno-optimist. I love technology. I think technology is what makes businesses more efficient. However, I think because of this, the market is drunk on that sort of techno-optimism and leaves certain businesses for dead.

A likely reference to Howard Marks: price is the main determinant of returns. The market pendulum and momentum swing to extremes, while business fundamentals don't deviate as much. Steel mill operators that were going out of business, that were going bankrupt, traded at 8x P/E. I look at a business like that and get excited. I'll start doing work and say, “Why is it trading at 4x when the market is trading at 25x or 30x?” Again, mean reversion—and I think margin of safety is the name of the game.

We look at a business like a remittance operator, and then you start digging deeper and say, okay, they have a lot of trust. Western Union is a very recognizable brand. If you're an immigrant in the U.S., you're likely going to want to go to Western Union as opposed to MoonPay or whatever. Can you make that business more efficient with technology? Can you make that business more efficient with stablecoins?

Then you start saying, okay, well, they pay most of their fees. You look at their cost structure and say most of those fees are for sourcing liquidity in local markets. If you want to send money back to Israel or whatever, they're going to charge you 2%, 3%, or 4%, and they're going to hose you on the FX conversion rate. They'll kind of hide it in a very interesting way, and then they'll have to pay a local merchant—a convenience store, whatever retailer in Israel—to source that liquidity to go back to the Israeli currency.

What happens in a world where, on the back end, your family member doesn't want to actually go to local currency because now they have a digital wallet? You can basically cut that big part of the cost structure for that business. Cutting costs is the name of the game here, gents.

I don't ever want to underwrite that we're going back to financial engineering and private equity. That thing has been a thing, right? It's like, “Oh, let's buy a business, put a bunch of debt on it, fire half the workforce with AI, and—”

DATs. That sounds like financial engineering.

11. Equity vs Token Holders

Yeah, financial engineering. Look, that's not the game we play. We simply first look at a business: Does it have scale? Does it have distribution? Does it have trust? If it has trust, you can do so much with that business.

Okay, so here's a follow-up question. Sorry to interrupt. A lot of chains are trying to do what you're doing, but without the private equity angle. So instead of buying businesses and putting blockchain into them, there's a blockchain angle and they're building a business.

Maple Finance is a great example. Plasma is another great example of that, right? They're building a stablecoin network, which is supposedly going to have real economic activity, and there's a token, too. But anyway, I guess my question is: What's the difference between, as investors look at Inversion or other tokens in the altcoin space that's very fraught with risk right now, asking themselves, “Okay, Santi says there should be real economic activity in order for me to invest in one of these tokens. Fine, we're all in agreement there”?

Digging one layer deeper, what's the difference between being an equity holder—or, in your case, a private equity LP—and a token holder? Does it have to be like Hyperliquid, where the token, or the project, needs to say, “All right, 95% of this real economic activity is going to buy back the token,” in order for you to give it the green light as a token investor? Or is there some other way that you're going to link real economic activity back to the token holders?

Yeah, look, in a perfect world, you map out all the cash flows that you make back to the chain. We're observing the regulatory environment, and we'll adapt based on that. We've got to work with what we have.

Again, going back to Hyperliquid: If we have 1 user, a whale in Hyperliquid, and it's trading, right? It's using Hyperliquid; it's generating fees. Think of our go-to-market this way: a company that we acquire is that whale. That company is bringing massive amounts of flow that, by the way, is sticky because we control it, unlike Maple, for instance.

A lot of the RWA protocols are doing the BD game. They're convincing, finding, and underwriting businesses. Look, all the credit to Sid: They go out, they underwrite the deal, and they'll bring it on-chain. I think there's a kind of principal-agent dynamic there. We're putting equity on the line—we're putting our money on the line to buy the business, and we control it.

12. The Future of Blockchain Investments

Because we control it, we can direct that flow to the chain. So there's a very clear connection in the value-creation story, which is that the incremental business that we buy brings more value, more of a stream of settlement fees to the chain. That's a simplistic way to think about it.

13. Final Thoughts

I'll tell you why. I guess a big part of starting Inversion was going and talking to a lot of the projects in crypto. Look, this technology's come a long way, and the UI/UX has come a long way. The biggest problem that we have as an industry is the go-to-market: Convincing businesses and convincing users to come in and use this stuff is very hard. A testament to that is we haven't really grown the number of users on-chain.

I went and talked to Coinbases of the world, and building distribution is very hard, time-consuming, and expensive. I want to acquire distribution at a really good price. Again, if I buy a business like Western Union hypothetically, it's like $4 billion. You know that they already have an existing user base that we can activate without them thinking about all these things. We can abstract away all that complexity.

So, again, it's customer acquisition, and it all really boils down to unit economics. If it were easy to convince businesses, if it were so easy to convince users to come and use this technology, then I wouldn't want to acquire these businesses and take a private equity approach. But it just isn't. If you look at the evolution of technology, it's really hard to convince these businesses.

There's a couple of things that you never want to assume, like changing consumer behavior. People are lazy, man. They don't want to switch bank accounts. They don't want to try new shit.

It's a fair question to ask if you're a skeptic of crypto. I think we don't have a good answer when someone says, “Hey, man, look, I hear you on stablecoins. The Collison brothers are hyped up on it. They say it's room-temperature superconductors, the greatest thing. Now, you let me know why we don't have more than 40 million active users. If stablecoins are truly amazing and everyone wants dollars, you let me know when we have 1 billion users using this stuff.”

As you think about relating to it, how do I invest in this thesis? Because stablecoins are going to continue to proliferate, I think you invest in this thesis by investing in companies that are going to use this technology and benefit from it.

In the same way that you can build a thesis around AI, who's going to build more value: the AI startup, Facebook, or some company that can use AI to fire half the workforce and be 10x more profitable on a per-employee basis? That's one of the things: Value accrual historically has been, like, it's going to accrue in the infrastructure layer. But I think user aggregation theory is very true. If you control the user, you monetize that, and then you utilize this infrastructure that is open, public, decentralized, and lowering the cost to become a financial services company, you can capture that flow.

And so that’s my thesis here. The last 10 years, succinctly, have been over $100 billion invested in infrastructure. If you were early Solana, Ethereum, Filecoin, whatever, you would have made a ton of money. I don’t think that thesis and that strategy work over the next 10–15 years. I think you want to now think: who’s actually going to capture more value, Robinhood or your new startup stablecoin issuer? Who’s going to capture more value?

Yeah, you know, I think this happened a little bit.

Sorry, go ahead. I thought you were—

14. Missing the Forest for the Trees

No, no, I think the point was made. No, no, I’m with you. I think one of the things that I realized probably a few years ago is that, at the end of the day, you need applications that are driving a substantial amount of activity to a platform. The reason that people were investing in infrastructure, from my personal perspective, is that there were no applications to invest in at the time, or you didn’t necessarily know what application was going to win.

People viewed it as an easy, safe sort of catchall: let me invest in the infrastructure. At some point, this will give me exposure to the idea, even if the specific investment does not end up being the thing that works in 10–15 years. It gives me access to the idea of crypto. I think what we’ve sort of come to now is an understanding that it’s about the actual—and always has been—it’s about the actual applications.

People used to say things like, “The underlying crypto network is like the underlying email protocol.” To me, that was always a really bad argument, because the underlying protocol shouldn’t make a ton of money, in my personal opinion, long term. It should be the things that live on top of the protocol that end up making money. Then, at some point, yes, the underlying protocol can make money.

When you look back to the early 2000s and think of the internet boom, there is obviously, today, a tremendous amount of company value created by startups that were the first to implement internet technology. However, there was also a ton of productivity gained by companies that had nothing to do with the internet that just ended up taking advantage of it. Restaurants, for example, setting up a website—I’m sure the bookings went up for individual restaurants because people were able to find them, go to them, and see them. That’s why food and beverage spending is up in the United States versus 30 years ago. It’s easier to go find these things now.

I think that’s what you’re doing and thinking about in crypto. Yes, there are companies that will be created crypto-first and will win and will be huge, but you’re missing the forest for the trees. There’s a huge other sector here where you’re going to have to actually integrate crypto at some point, one way or the other, and I can take advantage of that.

Now, the question is, in crypto, everyone, I think, is still focused on the wrong stuff. I kind of figured this out with MegaETH, and then everyone’s really excited about Monad, and I’m just not—same as you—I’m just not excited about these things anymore. I’m excited about what’s being built on top of them, and then maybe, by extension, the thing itself.

Which is why I know Plasma’s gotten a really, really, really bad rap recently, just because it keeps going straight down in a straight line, and that tends to make people upset with projects when they go straight down in straight lines. People get very upset. But at least they’re basically trying to build a neobank, and I respect that they’re trying to build a company, not necessarily a platform.

If you look at the tech analogy you did just now, if you look at what happened after 2000, everybody did the same thing. Cisco was the biggest company in the world for a hot second. The craziest thing is that it’s playing out exactly the same way in crypto, where everybody thought you had to invest in infrastructure, but what actually came out of that tech bust and subsequent 25-year supercycle were the things that really rallied, like Google and Amazon. They were apps. They were applications. They were real use cases.

To sum all of this conversation into one little nugget, the paradigm has shifted. Ignoring Bitcoin for a second, the only thing that’s investable here on out is basically killer apps. If you’re investing in infrastructure, you’re investing in Cisco in 2000, AT&T in 2000, whatever else—garbage, like local broadband cable providers in 2000. The stuff that didn’t 1,000x. I guess, Santi, you’re trying to buy killer apps. Somebody else might make one. Maybe Hyperliquid is; maybe it isn’t. But that’s what we’ve got to look for: killer apps, and probably not at current prices, because they’re terrifying.

15. Still Bullish Bitcoin

I’m kind of bullish on Bitcoin still. I’m still bullish on BTC. I do think that, just to throw a little sprinkle of trading in here, we’ve gone down too far, too fast. Regardless of anything, you probably see a bounce soon, because it’s very rare that everything goes down. Gold is going down, the Nasdaq is going down, AI is going down, Ford is going down, uranium is going down—every single thing is going down.

What that tends to mean is that it’s just general repositioning and deleveraging. Once that’s over, you get at least some sort of bounce. How high that bounce goes is sort of an open question. I personally don’t think the stock market bubble is over by any chance. I wouldn’t even necessarily call it a bubble. I do think we’re going to have a good end of the year.

When it comes to crypto, I’m out ex-BTC. I’m a lot less optimistic. I’m back to being an ETH hater.

I’ll say a couple of quick points on that. Jonah, you’re absolutely right. Look, Cisco never recovered from its all-time high. I think it’s one of those things where a lot of these things are grossly overvalued, and that’s just a downtrend that’s hard to overcome. You have some fundamental architectural issues of value capture, like we discuss here on Ethereum. You also have just overvaluation.

The most important thing to solve is distribution. Let’s not forget: this is open, public, decentralized infrastructure, and Stripe launching Tempo is kind of a warning shot. I get the Switzerland model, but this could be co-opted. This could be forked.

To your point, Avi, I also agree with you. I feel very comfortable holding Bitcoin. I think Bitcoin serves a purpose in pretty much everyone’s portfolio. Getting off zero—you’re going to continue to see that trend. I’ll underwrite that. I actually like Bitcoin here. I’m rotating a lot of stuff into Bitcoin, and I want to hold it in some measure in my portfolio.

I love this technology. I love crypto. I think the most important thing is that the value capture will happen to deployers, not infrastructure. There’s still maybe going to be some incremental protocol that creates a better mousetrap, better infrastructure. I’m not totally discounting that thesis on the early venture side, but there’s just an overinvestment in infrastructure.

What we need is, I think, more value to be captured by the Apples, the Googles, and the Amazons that realize, hey, the 2000s are very different than the ’90s. We actually can use a lot of the software and internet, and the price of that technology has come down dramatically. Again, block space has come down dramatically. So what can we do with that beyond speculation? Hopefully, hopefully make a lot of money. [Snorts] [Laughter]

Not a lot of money out there right now from the long side. People are hurting. My gosh, the sentiment is so dire. Although, what I will say is, like you and Santi, I want to get your take on this too as we get toward the end of the podcast. I think I like Bitcoin here too. I’m not a short-term trader, as everybody knows, but I will be adding if it trades down below $90,000, which we’re getting close to.

I think the OG selling is not going to happen here. I don’t think we’re going to get that forced selling of Bitcoin, and I do believe in the Bitcoin-to-$1 million thesis. I think the affordability crisis is bigger than crypto, and governments are not going to solve it with communism or socialism right now. Look who’s in charge. The guy wants his face on Mount Rushmore. He doesn’t want to be the next Herbert Hoover. We’re going to get something big, and I want to be holding Bitcoin when that debasement occurs.

Yeah. And even if it goes to $1 million, you’ll still be at a fraction of digital gold. Something like Bitcoin is the perfect meme. It is. There’s only 1 real digital gold here. Maybe people can argue Zcash is, but I think you’re absolutely right.

Institutions can’t really pronounce Solana or Ethereum. They definitely now understand Bitcoin, and they’re going to continue. I think that’s a secular trend that I’ll get behind over the next couple of years, so I’m there with you.

16. Institutional Interest in Crypto

I’ve got a great question for you. You’re talking to institutions. You’re doing crypto DeFi stuff day to day.

On this podcast, Avi and I are constantly going back and forth about how, as the infrastructure eats financial plumbing, flows will come into crypto. What does that look like? When you talk to institutions, are they like, “Well, in order to replace some payments rails with crypto rails, I’m going to open an Ethereum wallet and buy $1 billion worth of ETH”? Obviously not. Or is there something different they’re telling you? How do you view that inflow occurring?

It’s a trillion-dollar question, I would say. I was this morning just with one of the larger banks in the world—very old-school, traditional. Historically, they have not wanted to get exposure, not even offer Bitcoin products or crypto ETFs to clients. Their board last November said, “Hey, we have to figure out something here.” And now they’re offering ETFs to clients.

I think, again, it goes back to distribution. What are these financial institutions going to want to offer their clients? One of the paradigm shifts here is that Wall Street can make money off this industry, so Larry Fink is the perfect evangelist. This is my point: you had all of these perfect headlines and prices are going down. That just tells you everything you need to know about where we are. There’s massive overinvestment and overvaluation in some of these networks.

But, yeah, I think JPMorgan launching the deposit token on Base is pretty telling. I don’t know exactly what went into that thought process, but it was probably something along the lines of: they’ve had an internal team working on blockchain since 2015. Onyx, then Kinexys—they’ve been experimenting with that, and most banks have dedicated teams internally to try to figure this out. They want repo 24/7/365, settlement over the weekend—these are some pain points that they want to solve.

They’re looking to figure out how to streamline a lot of that workflow. I’d get behind the argument that most of them probably look to Ethereum first before anything else and likely just stick to Ethereum. JPMorgan launching on Base is probably like, “Hey…”

But that doesn’t mean they’re buying ETH. That means they’re launching stuff on Base.

Yeah. And this is again such a nuanced take, but it’s a super-important one: just because we have more adoption doesn’t mean the value capture is going to be there.

Ethereum—okay, you launched on Ethereum. Where in Ethereum did you launch? Well, JPMorgan launched on Base. Okay, what do you need to believe for Base to accrue all sequencer fees? It doesn’t have a token. You can’t invest in that. So maybe go buy Coinbase stock. Okay, is that trading reasonably well?

What do you need to believe to support a price-to-sales ratio of Ethereum coming down from 200x to 400x? I want to buy stuff at, like, 10x sales. Ethereum is $400 billion. It’s generating maybe $1 billion or $2 billion in revenue, not earnings. Goddamn, you need way more Larry Finks and Jamie Dimons of the world to get behind that.

So again, it’s not there. You saw this a lot in the tech boom. Businesses like Uber just didn’t have good unit economics. It’s one of those things where it was a great service, but don’t confuse great service with a good investment.

Uber penetrated markets, expanded rapidly, and delivered a phenomenal service to people, but it wasn’t profitable in the economic sense because the customer acquisition costs were so goddamn high. They were offering incentives to people. That goes back to my point earlier, which is that building distribution, even for a beautiful service like Uber that competed against taxis—which provided a terrible service—was goddamn very, very hard.

They just barely started becoming profitable in core cities like San Francisco and New York. Some cities are still not profitable. Everyone’s a genius when rates are zero, and there are so many businesses that got off the ground because we were in a record-low interest-rate environment. You needed that.

Building distribution, whether you’re in tech or crypto or any other business, is very, very hard. I’d be a little cautious about doing the simple math that institutions are coming, they’re going to deploy on Ethereum over any other network, and this is a path to $1 trillion. It’s not really, man. The value capture is not there for Ethereum.

Yeah, poor Tom Lee just eviscerated him in his Ethereum thesis.

You get clicks, man. But I’ll say this: just because your guy in the bank listens to Bankless and somehow believes that this is the world’s supercomputer, that doesn’t mean Ethereum is going to be worth $1 trillion. I’m sorry, guys. At this price, it maybe is worth 10 times sales, maybe.

You know what it is? It’s a holdover of what crypto used to be like in 2021 and before, where you just joined a camp and stuck with it, and whatever the actual reality of the situation was didn’t matter. It was, “I got in through Ethereum,” or “I got in through X,” or “I got in through Y.” I’m a Chainlink holder. I’m a Ripple holder. I’m an Ethereum holder.

That’s what the DATs are kind of reintroducing, in my opinion, in a way. They kind of need that to be true. Tom Lee needs it to be true, obviously, to make a ton of money, but it’s just not true in any meaningful way.

So, no, I’m with you. I’m back to being a hardcore Ethereum hater. I made a name for myself over the last 2 years by being the biggest Ethereum hater that’s ever existed. 2 and a half years ago, I said that Ethereum was going to be the Ripple of this cycle. I think it’s kind of heading that way, except Ripple’s actually done pretty well.

We even got an angrily worded letter from both of the Bankless podcasters.

Yeah, they said they sent us a cease and desist. That was pretty funny.

Oh, wow.

Look, man, I’ll tell you a thing. I’ll leave you with this: price-to-sales. When you look at these dashboards, they all kind of say MEV. You know, those are the revenue of these chains, right? And they confuse that with earnings. They’ll juice it; they’ll throw in staking rewards. I’m like, that’s not revenue. That’s not earnings, right?

Look at cash flow of these businesses. You have category killers in the public markets. Anything above 10 times price-to-sales is growing dramatically and has contracted revenue. Even the best SaaS companies in the world have maybe 10 to 15 times ARR, recurring revenue.

Underwrite a thesis if you’re Tom Lee. I think he’s a very good public speaker or whatever, but fundamentally, walk into a committee and give me the reason why I should buy an asset that’s trading at 100x, 200x, 300x, or 400x price-to-sales when revenue isn’t recurring.

Even though you could say it’s high growth, maybe get behind the growth piece because all the institutions are coming. All right, great. But again, it’s one of those things where you just have to stay disciplined, man. Rule number 1 is never lose money. Rule number 2 is don’t forget rule number 1.

This is why I titled my blog post today, “Thank You, Dear LPs: We Outperformed Ethereum, but the Fund’s Still Down 80%.” How many times, if you have fund managers, has that goddamn letter been written?

Too many. Hopefully, never again.

At least not by any of us.

This time is not different, Tommy.

I know. I know. I know. We’re going to go back there, but at least for now, we’ve got people like you coming on podcasts like this, spreading the truth to people. We appreciate you coming on, man. This has been fun. This is awesome, as usual.

Yeah, amazing. I learned a lot.

Please forward all the criticism and whatnot.

Oh, we will. Don’t worry. You think I’m going to hold on to that for myself?

It’s going straight to you.

Yeah, I appreciate what you guys do. Thanks for having me on. Really good discussion.

Likewise. Let’s do it again sometime. Thank you, Santiago.

For sure.

Take care.

Thanks, J. Take care.